Key takeaways

• • Knowing your life insurance policy details can help you and your family get the full benefits of your policy.
  • Read through your life insurance policy to better understand each component, including insurance riders, the claims process, and coverage exclusions.
  • Review and update your life insurance policy regularly, including after major life-changing events like marriage, divorce, deaths, or births.

It feels good to know you’ve purchased a life insurance policy. You can tuck it away in a safe place and forget about it, right?

Not so fast. Before you file it away, take a few minutes to read through your policy. Your life insurance policy details cover everything you need to know about how your life insurance works, like what’s included, how to use it, and who to call when you need help. The better you understand your coverage and its terms, the more likely you are to get the full benefits from the policy.

Understanding your life insurance contract

It’s helpful to keep in mind what a policy is: a contract you sign with your life insurance company. There are various rules in the policy you need to follow to keep your policy active. Your life insurance contract requires you to do your part, like making premium payments on time, so that the life insurance company can do its part – being there for your family if something happens to you.

It’s also important to know life insurance policies are customized. That’s important because it means your life insurance policy may be different from other people’s policies. Having a customized policy is a good thing, since it allows you to create a plan that fits your life, budget, and needs. You just need to understand your own policy to ensure you can take full advantage of its features.

Understanding your life insurance policy might seem tricky, since it’s filled with insurance industry terms that are probably unfamiliar unless you’re in the business. But it’s easier than you think to understand your policy, once you know the basics of what’s included and how it’s structured.

Here, we break down what you need to know before reading your life insurance policy. Invest a few minutes of your time understanding life insurance and how it plays a role in your life moving forward. We promise, understanding your life insurance policy is worth it.

What is a life insurance policy?

A life insurance policy is a formal agreement between you and an insurance company. At a basic level, a life insurance policy provides a payment to someone you name if you die while the policy is active. Your insurance policy may also have additional features and benefits, depending on the type of coverage you purchased.

The life insurance policy is the actual paper document (also often available electronically). This is a legally binding contract.

When you buy life insurance, you’ll submit an application – typically either online, by phone, or sometimes in person. The application goes through an underwriting process to determine your eligibility and rates. Once you’re approved for coverage, the insurance company will provide an electronic or paper document to you – and sometimes both – as records of your policy.

Keep in mind that once your policy is in effect, you’re obligated to maintain the terms you’ve agreed to going forward to receive the policy benefits. That includes making payments on time. Once you receive your policy, take a few minutes to review it and then file it in a secure location.

Common life insurance definitions and terms

Life insurance policies contain a lot of terms you may not have heard or used before. Not to worry – deciphering your coverage is a lot easier once you know the lingo.

Since the terms are unique to each policy, to help you learn how to understand your life insurance policy, we’ve created a list of some of the most common life insurance industry terms you should be aware of as a policyholder. If you don’t see a term here, check out our glossary .

Beneficiary

A beneficiary is the person named on your life insurance policy who will receive the death benefit, or the payout, from the policy. You can change the beneficiary later if you want to, and you can also name multiple beneficiaries.

Cash value

Your policy may come with a cash value component, which is an amount of money that builds up over time in some whole life or universal life insurance policies. Once your cash value has reached a certain level, you can borrow from it to pay for anything you choose.

Death benefit

This is the money the life insurance policy pays out at the time of the covered policyholder’s death. There are a wide range of death benefit amounts available. Depending on your policy, your death benefit may range from a few thousand dollars to $1 million or more.

Life insurance clause

A life insurance clause is a section of the life insurance policy or an endorsement to the policy that creates specific rules about the policy itself. A clause is one way policies are customized to your needs. Clauses may exclude various situations or make changes to parts of the contract.

Here are a few common life insurance clauses you should know:

• Grace period : This clause keeps the life insurance policy active for a set number of days if the policyholder does not pay premiums on time. Most states mandate that the grace period is at least 31 days long, but insurance companies can make this period longer if they want. If you run into a financial tight spot during that period, the grace period gives you a little more time to make your payment without losing coverage.
• Free look period : Making a decision to buy life insurance is a big one, and this clause aims to make it a bit easier for you. During this period, you can “give back” the policy for a full refund. This is often only in place for a short period of time, typically anywhere from 10 to 30 days.
• Spendthrift clause : This clause offers protection to beneficiaries who may be in debt. It protects the death benefit from being claimed by the beneficiary’s creditors before that person receives the funds. As a policyholder, this clause can give you confidence that your beneficiary will receive the funds you’ve left for them.
• Reinstatement clause : If a policy is terminated due to lack of payment of premiums, this clause allows you to reactivate the policy if you pay all outstanding premiums owed and applicable interest. The clause may state that you have to prove insurability again first, in some cases.

Life insurance contestability period

Most life insurance policies have a contestability period. If the person insured by the policy dies during this period of time, often soon after putting the life insurance policy in place, the insurance company has the right to review the claim. An undisclosed medical condition or a violation of another term in the policy or application may lead to the denial of a claim or a reduction in the amount paid out. This period typically lasts two years after you purchase the policy.

Nonforfeiture options

Some life insurance policies have nonforfeiture options. This is a provision in the policy that explains how the cash value is applied to the policy’s premiums. If you build up enough cash value in the policy to cover your premium costs, this clause states that the cash value can be applied to your premiums if you stop making payments.

Participating and Non-Participating

Some policies are participating policies, which means that the policyholder could receive dividends, or payments, from the life insurance company while the policy builds value. A non-participating life insurance policy does not allow dividends. Policy dividend payments can get complex, so ask your insurance company about the specifics.

Policyholder

This is the person that owns the policy. Most often, it is also the person covered by the life insurance policy. However, it’s possible to purchase a policy and name another person as the insured party, like a spouse or child.

Premiums

This is the price you’ll pay for your coverage, typically as an annual or monthly payment. Premiums are always defined within the life insurance contract.

Premium/rate class

The premium class, or rate class, is set during the underwriting process after you apply for the policy. Each insurance company has its own classification system to help determine risk. Your insurer considers factors like your medical history, lifestyle, occupation, and family history and assigns a specific classification, such as:

• Preferred Plus
• Preferred
• Standard Plus
• Standard

Surrender

When a person surrenders their life insurance policy, it means the policy is fully cancelled. If you surrender permanent life insurance, you may receive a payout if any cash value has built up in the policy.

Term life insurance

Term life insurance is in place for a set number of years, typically between 10 and 30 years. If you die during that term, your beneficiary receives the death benefit from your policy. After the term length is up, you’ll need to pay higher rates based on your current age if you’d like your coverage to continue.

Underwriting

Life insurance policies go through a process called underwriting. The underwriter evaluates the amount of risk for the individual who has applied for coverage, assigns a classification, decides whether to approve them for coverage, and sets their premiums.

Universal life insurance

Universal life insurance is a type of permanent life insurance that lasts your whole life as long as premiums are paid. This type of life insurance may have an adjustable death benefit and payment schedule.

Whole life insurance

Whole life is another type of permanent coverage. It has a fixed death benefit that remains in place for your entire life, as long as your premiums are paid. It also builds cash value over time.

Parts of a life insurance policy

A life insurance policy includes multiple sections, each with different information you should know about your coverage. Though the overall life insurance policy format is generally the same from company to company, your policy document might look a little different. Here’s an overview of the most common parts of a life insurance policy.

Cover Page

The cover page is a life insurance policy summary at the beginning of the document. It provides a snapshot of the most important information about the policy. Typically, that includes the policyholder’s name, the insurance company’s name, the type of policy, and basic information about the coverage.

Schedule of Benefits

The life insurance policy details are in this section, which is sometimes called a declaration page. This part of the policy provides an overview of the specific features of your coverage. This should include:

• Who owns the policy
• The insured party (often the same as the policyholder, but they can be two different people)
• Beneficiaries
• The type of policy
• The term length, if applicable
• Policy number
• Policy dates
• Death benefit amount
• The rate class for the policy
• Premium amounts and scheduled payments
• Any policy riders (often at the end)

Policy Terms and Definitions

The next section of most policies is a list of terms and definitions specific to the coverage. This section typically outlines some of the terms noted above, but also provides specifics on your own policy’s most important features.

Policy Coverages

The next section of the policy defines the contract’s terms clearly, including all of the “rules” of the policy and what the contract covers.

This section of the policy may include explanations such as:

• A summary statement that identifies the policyowner, insured party, and all beneficiaries
• Grace period information
• A schedule of payments, including information about current costs, but also whether payments change over the course of the policy
• Reinstatement of coverage details if the policy’s payments fall behind
• The process for making a claim
• Exclusions applicable to the policy, including instances in which a claim is not paid
• All riders associated with the coverage

The coverage section also discusses ownership and conversion rights, if applicable. This defines if it’s possible to transfer the policy or convert it from a term policy to a permanent life insurance policy.

Riders are a type of additional coverage applied to the policy, allowing you to customize the policy to fit your needs. Any riders included in your policy will be listed in your coverage section. Some examples include:

• Accidental death benefit , which increases the policy payout if the death was caused by an accident or from the injuries brought on by an accident.
• Family accidental death benefit, which you can add to an accidental death benefit policy to provide extra coverage for your partner or kids.
• Inflation, which increases your payout to help your policy keep up with inflation.
• Accelerated death benefit rider , which goes into effect if you’re diagnosed with a terminal illness. This rider pays a portion of the death benefit while you’re still living to help with medical expenses and the cost of your care.
• Return of premium rider, which refunds a portion of your premium costs if your policy expires or you choose to cancel it.
• Child insurance policy rider , a rider that helps cover funeral costs or other expenses if one of your children passes away while your life insurance policy is active.

Not all life insurance policies have riders. Depending on your policy, other types of riders may apply, too.

The information in the coverage component of your policy is critical to understand. If you’re not sure about something, be sure to ask. It may help you make better use of your life insurance.

5 facts you should know about your policy

Having the right information is critical. Here are a few key questions that you should be able to answer about your life insurance policy. You can also reach out to your agent to learn more about the coverage and your policy itself.

#1: What Type of Life Insurance Policy Do I Have?

You should know if your policy is a term life insurance policy or a permanent life policy. If you have term life, it’s also important to know how long your policy remains in place.

#2: How Much is the Death Benefit?

Figure out how much money your beneficiaries will receive from the policy if you die. Once your family receives the death benefit, they can use the money for whatever they need. As life changes, make sure the amount you’re leaving behind meets their current and future needs.

#3: Who Are My Beneficiaries?

Know who your listed beneficiaries are, and make sure to tell them about the policy and how to claim it if needed. Also, do you know how to change them if you decide to later? In most cases, updating beneficiaries is as simple as filling out a form. With Fidelity Life, you can do it online at the Customer Account Center. It’s also a good idea to list contingent beneficiaries – these are your backup beneficiaries if the first people you list can’t accept the death benefit for any reason.

#4: What Types of Exclusions and Protections Are Listed on My Policy?

Be aware of any exclusions to your policy for suicide, drug overdose, or other situations that aren’t covered. It’s also good to brush up on your protections as a policyholder, like your grace period for late payments or options to extend your coverage.

#5: Does My Policy Allow Me To Borrow From the Cash Value Over My Lifetime?

Some types of permanent life insurance build up cash value during your lifetime. You may be able to take out a loan from those funds to use for day-to-day needs. Remember, you’ll need to pay back this money to avoid a reduction in your death benefit later.

Still have questions?

Asking questions is one of the best ways to get information specific to your policy. Here are a few of the most common questions answered for you.

What should I do if I find an error in my policy?

Reading through a life insurance policy carefully is a good way to pinpoint any discrepancies. Make sure you understand the terms of your policy fully and look for any errors.

If you find a problem later, contact the insurance agent to discuss your concerns. That includes things like differences in your name or address. It also includes mistakes in terms, riders, coverage, or beneficiaries. Mistakes happen, and there are steps available to correct them. Doing it as soon as possible is critical to make sure your policy protects your loved ones effectively.

How do I update my policy?

Life changes, and sometimes that means updating a life insurance policy to better meet your needs throughout your lifetime. This can include situations like:

• Updating a beneficiary. Change beneficiaries as often as you need to do so, such as after a divorce, death, or any other reason. Contact the life insurance company directly to request a document to update beneficiaries. This process is straightforward and can be done quickly in most cases.
• Changing your coverage amount. Need more or less life insurance than you originally purchased? Work with your life insurance agent to make any adjustments to your coverage amount. In some cases, adjusting coverage can impact your rates or require you to reapply for a new policy.
• Making other changes. For any other change, contact your agent to determine if it’s possible. Some elements of the policy, such as who is insured and clauses or exclusions, may be difficult to change.

Where Should I Keep My Policy?

This is something to take into consideration carefully. After a sudden death, you want your family to be able to access your policy and death benefit. That’s why it is important to inform loved ones, especially your beneficiaries, that you have a life insurance policy and where they can find it later.

It is a good idea to keep one set of policy documents in your home, as long as you can store them in a safe place. Many times, it’s also wise to provide a copy to your attorney if you have one. They can store the document and retrieve it once they learn of your passing.

It’s not always wise to place this document in a bank or security box. Often, after a person dies, their assets are frozen until the estate goes through probate. Since life insurance is payable immediately after a death, your family members need to be able to access the policy quickly to pay for time-sensitive things, including ongoing bills, funeral costs, and daily expenses. However, if you seal that information away in a bank box, they may be unable to obtain it and file a claim.

How Often Should I Review My Policy?

It’s a good idea to complete an annual review of your life insurance policy. Some people like to do this at tax time, just as a way to review all financial information.

It’s also important to review your life insurance policy any time significant life events occur that could impact the policy in any way. This may include:

• Early diagnosis of a disease, like dementia
• Marriage
• Divorce
• Addition of a new child
• Death of a beneficiary

Fully reading and understanding your life insurance policy is your right. If you don’t understand any details of your policy or just have questions about the changes you can make, reach out to your life insurance company. Staying up to date on your coverage helps make sure it’s providing all the protection you need.